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Home warranties

A home warranty is a service contract, not insurance. You pay roughly $300 to $900 a year, plus a $75 to $125 service call fee each time you use it, and in exchange the company agrees to repair or replace covered systems and appliances that fail from wear and tear. California law, for example, defines these contracts as covering failure "necessitated by wear and tear, deterioration or inherent defect" — which is precisely why pre-existing problems, improper maintenance and code upgrades are so often excluded.

Start with the legal category, because it explains everything else. Federal law defines a service contract as "a contract in writing to perform, over a fixed period of time or for a specified duration, services relating to the maintenance or repair (or both) of a consumer product." It is a contract you buy separately, after or apart from the purchase of the item, which is exactly what distinguishes it from a manufacturer's warranty under the FTC's rules. It is a promise to perform services, bounded by whatever the document says.

That means the contract is the product. Not the brochure, not the sales call, not the star rating. The exclusions section, the coverage caps, and the definitions of "pre-existing condition" and "normal wear and tear" are where every disputed claim is decided. If you cannot get the full sample contract before you pay, do not buy.

The honest financial framing: at a national average around $600 a year plus $75 to $125 per service visit, a home warranty is a way of converting an unpredictable repair bill into a predictable subscription — while accepting caps on what the company will pay and giving up your choice of contractor. For homeowners with cash reserves and older, well-documented equipment, self-insuring is frequently the better deal. For homeowners with no reserve and an unfamiliar house, the smoothing has real value.

One structural point worth knowing before you sign: most of these contracts contain binding arbitration clauses, and under the Federal Arbitration Act a written arbitration provision in a contract involving commerce is "valid, irrevocable, and enforceable" except on grounds that would void any contract. If you sign it, you are very likely giving up the right to sue in court over a denied claim. That is not a scandal — it is standard — but you should know you did it.

How to choose

Read the sample contract before you pay
Exclusions, caps, and the definitions of pre-existing condition and normal wear and tear. A company that won't send the full document before purchase has answered your question.
Do the self-insurance math
About $600 a year plus $75 to $125 per visit, versus putting the same money in a savings account you control. Write both columns down.
Check the caps, not the coverage list
"Covered" with a low per-item or aggregate dollar cap is functionally partial coverage. The cap is the number that matters.
Assume you can't pick the contractor
These contracts generally route you to the company's own network. If having your own trusted plumber or HVAC tech matters to you, this product may not fit.
Know your state's regulator before you need it
Home warranties are regulated differently in every state — insurance department, real estate commission, or consumer affairs. Find out which one covers you now, not during a dispute.
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Sometimes. It costs around $600 a year on average plus $75 to $125 per service call, and it caps what the company will pay. If you have savings and known-good equipment, self-insuring usually wins. If you have no reserve and an unfamiliar house, the predictability can be worth it.
No. It's a service contract — federal law defines that as a written contract to perform maintenance or repair services over a fixed period. Insurance covers sudden, accidental damage; a home warranty covers failure from wear and tear.
Most denials trace to the contract's own definitions: pre-existing conditions, improper maintenance, items excluded by name, work that would require a code upgrade, or a claim that exceeds the coverage cap. These are contract terms, not surprises — which is why reading the document matters.
Often not in court. These contracts commonly include binding arbitration clauses, and the Federal Arbitration Act makes written arbitration provisions valid and enforceable except on grounds that would void any contract. Check that section before you sign.
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